IMF tells Pakistan to stop investment perks, potentially hitting China’s belt and road projects

The condition is likely to deal a blow to a new export processing zone being planned in Karachi

Reading Time:2 minutes

The Gwadar was built under the China-Pakistan Economic Corridor project. Photo: Xinhua

Published: 3:54pm, 11 Oct 2024

The International Monetary Fund asked Pakistan to stop setting up any industrial zone that offers incentives for investment, in a move that may undermine Islamabad’s efforts to attract more Chinese industries into the country.

The authorities will refrain from providing incentives such as tax breaks and subsidies to any new or existing special economic zones, the Washington-based lender said in its report released on October 10. This will help provide a level playing field for investment, the report said.

The IMF’s condition comes as Prime Minster Shehbaz Sharif is trying to convince Chinese companies to shift more industries into Pakistan thereby giving a fresh momentum to projects under its Belt and Road Initiative. The country had planned to build at least nine special economic zones under the China-Pakistan Economic Corridor project that are at various stages of development.

The lender asked Pakistan to offer a level playing field to businesses to attract investments without undermining the country’s tax base, according to Nathan Porter, IMF’s mission chief for Pakistan.

The country has provided protection or concessions to sectors that were low in productivity, he said in a briefing last month, the reason why Pakistan has not been able to achieve the kind of sustainable growth rates many of its regional peers have.

The demand from IMF is expected to immediately hit a new export processing zone that the government plans to build at the site of Pakistan Steel Mills in Karachi, Pakistan’s commercial capital in south.